When you have an ill like gambling or liquor, it makes sense to have a state monopoly to curb usage. The high monopoly price limits usage and rakes in more money for the state. State monopolies may be better than outright prohibition. But those are the only things good about them.

This logic of externalities works less well with a price discriminating monopolists. A monopolist may charge different markups on different products based on price sensitivity. That is, they may set a different monopoly price for each kind of liquor. If they can further discriminate with affinity clubs, rebates, personal coupons and so on, then each person can be paying their own personal monopoly price. The price discriminating monopolist does not deter usage if it does a perfect job, just extracts all the consumer surplus out of the sale. That suggests that the value to the citizenry of curbing usage through a state monopoly is falling with technology.

Consider the state lottery machine in the Chicago O’Hare airport. It has about 40 different games. What may have deterred entry through a high price and low choice in yesteryear certainly looks to me like a very aggressive price discriminating monopoly. Some entries cost $10, some just $2. Some have high prizes, some low and some groups of prizes. The state is not curbing the ills of gambling in the slightest via this method. It is just expropriating all the rent for the state.

Monopolies also perpetuate high cost. There has not been much in the way of innovation in internet lotteries coming from state lotteries. Some kind of security dongle distributed in state would allow state internal internet distribution of further lotteries at much lower cost than paper. The monopolist might do a calculus that says that such a system might increase overall revenues and decrease costs, but most of that would go to the state and the players and not us. Don’t expect too much innovation from monopolists that do anything except maximize their profits.

How about some conditional federal spending for states that allow liquor sales through the mail to encourage competition? That does not sound like a political winner. Good luck if you like mail order wine. The liquor lobby might well ban all mail order sales in state and out to protect each oligopoly. Cheers.

The other day a visiting friend asked me if there was anything I liked about Florida. I managed to come up with three: no state income tax, warm ocean water (good for diving, unlike California), and thunderstorms. One of the other complaints that I’ve had about the state is that when we moved here from LA, we could no longer receive wines from the Wine of the Month club, something that we’d been doing for years there.

The Supreme Court has apparently ruled that state laws prohibiting the sale of wine to individuals by out-of-state entities (e.g., the Florida one that prevents the WotM Club from sending us wine in Boca Raton) are unconstitutional. However, Professor Bainbridge says that:

…it’s not at all certain that consumers in the 24 states that had banned direct to consumer sales will soon be able to buy wine on the internet and have it shipped to their home or office. If the states chose to change their laws so as to ban direct-to-consumer sales by both out-of-state and in-state wineries, those laws almost certainly would be upheld as within the states’ powers under the 21st Amendment. Given the considerable power wielded in most of those 24 by the wholesalers and retailers who benefit from bans on direct-to-consumer shipments, as well as lingering Prohibitionist sentiment in some of the more Southern and rural of them, I expect many of the 24 to enact nondiscriminatory bans on direct-to-consumer shipments.

Well, if that’s the case, the state (and its wineries) are in a quandary. There are in fact Florida wineries (something I hadn’t known prior to researching this blog post). At least one of them (I didn’t check any others–it constituted an existence proof) is shipping wine directly to Florida consumers (in fact it probably even does so out of state, though I didn’t attempt the order to find out).

That means that, if the good professor is correct, in order to circumvent this ruling, Florida will have to outlaw in-state wineries from shipping direct as well, and only allow them to offer their fermented grape juice through the groceries as other wine is sold or (perhaps) they might even have to restrict wine sales to the state liquor stores (this is less clear). So it’s a devil’s bargain for the states (certainly small, relative to, say, California) for them. They can keep out the competition, but only at the cost of losing a perhaps-significant part of their own mail-order market. It will be interesting to see how both the state (and lobbyists in the state wine industry, whatever its political strength) responds.

And it reminds me of why I didn’t want to move to Florida. High in the low seventies, lows in the low sixties, low humidity, gorgeous views of the Santa Monica mountains wrapping around the bay to the north. Unlike the unremitting flatness of the Sunshine State, there’s actual relief here, with houses nestled on hillsides, and snow still on the highest peaks of the San Gabriels and San Bernardinos.

Too bad the government sux so much.